Irregular  Workers Correction Campaign in Saudi Arabia

In april 2013, the Saudi King then, Abdullah bin  Abdulaziz Al-Saud issued a direction to the Ministry of Interior and Ministry  of Labor to grant workers who are in violation of the law of labor and  residency a three months grace period to correct their status, under the  penalty of deportation. Directions came after the two ministries started a  inspection campaign in the premises and facilities of firms to make sure of the  validity of its workers’ legal documents, whose count could mount up to  hundreds of thousands, according to local newspapers. These inspections came to  be known “the correction campaign of the status of foreign labor.” This paper  will look at direct results of the campaign in light of the goals set by the  labor market regulating agencies, and will provide a background on the  historical context of the labor market and the political economy of Saudi  Arabia, and the wider Gulf Cooperation Council (GCC) countries.

This correction campaign represents a vital case  study for the policies of the GCC countries in the area of labor market and  demographics, as it is the first-of-a-kind initiative to adopt active labor  market policies (ALMP) to encounter the structural problems in the labor market  and demographics. The campaign has two prongs: providing subsidies for firms  that employ Saudis and discourage employing non-Saudis by increasing their  cost, and enforcing the law on foreign irregular workers. Since Saudi is the  largest country among GCC countries in terms of GDP and population and because  of the far-reaching implications of the campaign on millions of citizens and  noncitizens,  it has become of vital  importance to study it, starting from its causes, stances of the different  stakeholders, to its results and implications.

The main hypothesis of the paper is that  this text law  enforcement campaign has had a very negative effect on specific non-Saudi  communities, especially the Yemeni community, for the  accompanying media campaign that worked on  demonizing the foreign labor, setting it as a scapegoat for the economic and  security troubles in the Kingdom. On the other hand, the effects of the  campaign on the unemployment rate among Saudis has been very limited mainly  because the majority of occupations of the foreign labor require low skills  with limited wages, which Saudis are reluctant to take on. Economic  implications are mainly an increase price levels and and delays in completion  of projects and construction of facilities which depend on the labor of  foreigners. This raises questions on the effectiveness of the campaign, and  whether it represents a long-term solution for the structural distortion in the  labor market in the Kingdom.

Overview  on the Campaign

The governmental direction came after four months  of the legislation of Committees of Management and Human Resources in the  Shoura Council a proposal to deal with workers in violation of labor and  residency laws, through amending the Clause No. 39 which illegalize change of  sponsor, making the law more strict. it also deleted the Clause No. 233 of the  law which include punishments for violators of the former clause. the proposal  burdens the security agencies with the responsibility of chasing workers under  the sponsorship of other than their original ones, self-employing foreign  workers (commonly known as “amala saeiba”), absentees, and apprehended  border-crossing individuals, by detaining, punishment, and deporting them. The  proposal details the punishment against firms and individuals that employ  irregular workers, including preventing and restricting them from recruiting  foreign workers in the future.

Irregulars workers are generally divided into  three types: expatriate workers who are still in the country despite having  their working permits expired or revoked, expatriate workers with valid working  permits but they have “escaped” from their employers and have been reported as  “escapees,” and expatriate workers working for other than their original  employers without updating their information according to the Residency  Regulations and Work and Workmen Law. The Minister of Labor then, Adel Faqeeh,  stated that these actions will help the market “increase the nationalization  percentage in the facilities,” and will help Saudis opening their own business  after getting rid of “illegal competition.” The Ministry reiterated afterwards  that the campaign will help increase the number of working Saudis.

The surprising decision has caused a shock in  business and official circles and in labor-exporting countries due to the  millions of expatriate workers in Saudi. Branches of Ministry of Labor and and  General Directorate of Passports of Ministry of Interior were overcrowded with  numerous workers seeking to update their information according to the Residency  Regulations. After the Ministry of Labor and General Directorate of Passports  emphasized that the grace period will not be extended, a royal direction to  extend it by three months, indicating how official agencies were taken by  surprise with updating the information of over one million workers. By the end  of the original period, more than half a million were forcibly deported, which  increased to around a million after the extended grace period out of 6 million  workers. The status of 4.7 million workers was corrected.

Historical  Context

GCC countries have enjoyed huge revenues as a  result of the increased oil prices and nationalization of oil companies in the  second oil boom between 1973-1985, which made available a capital capable  theoretically to form modern welfare states. However, as Omar Al-Shihabi argues,  the local labor force presents the political elite with three problems: first,  the inability of the local labor force, quantitatively and qualitatively to  satisfy the needs of the available capital and the magnitude of planned  projects; second, subjugating the local population to the needs of the capital  which strived for free-0f-rights labor contradicts that the state promises of a  higher level of economic welfare as a result of increased oil revenues; third,  dependence on local labor force -as was evident in the labor movement in the  fifties- might form a political conscience that could lead it to demand  participation in decision-making and distribution of oil reviews, especially  amidst the heightened worry among decision-makers in the GCC and the west of  emergent leftists and nationalist movements. As a result, the political elite  opted for importing cheap non-Arab labor -mostly South Asian- with no secured  political or economics rights. In 1975, labor from Arab countries formed  approximately 72% of the labor force, but it fell to less than 40% in the  mid-90s. Local labor has found the public sector, with its high wages, shorter  working hours, and the social security it provides, a suitable choice. Thus,  citizenship was tied to the social and financial benefits the public sector job  provides, whiles the rights of expatriate workers remained weak and under the  control of capital in the private sector. Citizens have become increasingly  reliant on the social and economic benefits provided by the state, and on the  other hand, state has become independent of society as oil revenues spared the  state the need of collecting taxes from citizens.

Thus, over the years of the second oil boom, the  percentage of Saudi workers to the total labor force accelerated downwards from  74.8% in 1975, to 47.3% in 1980, to 33.3% in 1990. By the dawn of the ninth  decade, with the decrease of oil price, increase of population, and inability  of the public sector to absorb more numbers of citizens, the problem of  unemployment surfaced. To encounter unemployment, the state has adopted the  “Saudization” policy to encourage the private sector to employ more Saudis and  impose restrictions on employing foreign labor. But the private sector was not  willing to employ citizens, whom it considered expensive and unproductive,  whiles citizens themselves find it greedy, opportunistic, and lacking proper  working conditions. As both sides this undesire, Al-Shihabi argues that GCC  governments opted to substitute its Arab employees in their bureaucracies with  citizens, with decreasing expenditures on developmental projects.

Oil price increase from $22 dollars in 1990 to  its peak, $144 in 2008 which allowed for the accumulation of approximately $2  trillion available for use in mega projects, which promoted the private sector  to continue importing foreign labor, making the population growth rates in the  gulf the highest in the world. However, this phase had different  characteristics than previous ones, including the privatization wave and the  increase of foreign labor in the private sector mainly, in accordance with the  recommendations of International Monetary Fund and International Bank. One of  the characteristics that differentiates the foreign labor this time is reliance  on them by ordinary citizens as a source of income, not just major capitalists. 

With the saturation of the public sector, some  citizens has opted for the private sector, not as employees but rather as  employers through renting multiple-story buildings and shops, trading of visas,  or working as a front image of establishments managed by expatriate workers,  forming a major form of rent-seeking behavior. Omar Al-Shehabi refers the  readers to statistics showing that almost half of the foreign labor are  distributed between small- and mid-size enterprises and domestic jobs. The  sponsorship system (kafala) served as one the ways to distribute oil wealth  through the importation of cheap foreign labor and controlling the surplus  value it produces.

Before  the Campaign

In the beginning of 2013, the total labor force  was 11,286,744, with employed being 10,634,733, and non-Saudi employees were  6,003,616, which is 56,45% of the total employees. Consistent with our  description of the political economy of Saudi, these employees are concentrated  in the private sector, in which 99% of the expatriate workers are employed. It  can observed that the educational level of their majority is low, as 62.3% are  below high school level, therefore 59% are in “support engineering” and  “services” occupations; and by sector 26%.5 are in construction, 22.3% in  wholesale, and 15% in domestic jobs. In fact, three quarters of jobs created by  the Saudi market in the three years between 2009-2011 were fulfilled by foreign  workers.

Apparently, most of the the jobs created by the  Saudi markets does not require high levels of education. Statistics point to  weak qualification of labor force as the working permits for professional  occupations that require “high or very high qualification” were only 12% of the  total permits.

Stances  of Stakeholders

Interests of business persons and firms are  represented through the Chambers of Commerce in 28 cities/provinces across the  kingdom, under the umbrella of Council of Saudi Chambers. Chambers of Commerce  are one of the few lobbies in Saudi, where two-thirds of the members of Board  of Directors are elected every four years, and the remaining third are  appointed by the Ministry of Commerce and Industry. Business persons and firms  were cautious at best, and alarming and condemning at worst, while trying to  show up supportive of enforcing the Residency Laws and Law of Workmen and Work,  and ending unemployment among Saudi youth.

On the highest level of business owners, after  more than  a year of expiry of extended  grace period, Director of Council of Saudi Chambers, Abdulrahman Al-Zamil was  careful to be in support of the correction campaigns undertaken by the  Ministries of Labor and Interior to regulate the saudi markets and end the  violations of the foreign labor, emphasizing the importance of enforcing  regulations. However, during the campaign, the Director of National Council of  Contractors and member of Council of Saudi Chambers, Fahhad Al-Hammadi, warned  that the grace period has resulted in the loss of 15% of profits of investors  and 40% of small-size enterprises will be shut down by the end of the grace  period. This fear is not surprising considering that the construction sector is  the on the most dependent sectors on cheap foreign labor. Chambers of Commerce  indicated that they want to extend the grace period in several meetings between  the Ministry of Labor and Chambers of Commerce. After the decision to extend it  three additional months, Director of Council of Saudi Chambers stated that “extend  the grace period of correction strengthens the economic stability of facilities  of the private sector and accelerates its steps towards nationalization.” While  the Chambers of Commerce mainly represent the large-size enterprises,  small-size enterprises do not have a similar venue to represent its interests  that can be affected largely by the correction campaign as they would be forced  to pay the fees of status correction, with much lesser size and profits. Even  though it is hard to observe their reactions, as there are no lobbies  representing them such as the Chambers of Commerce, several investigations  reported that their fears of the campaign of the ministry. One reported a small  business owner saying that the difficulty of obtaining legal work visas might  drive them out of the market.

Reactions  of Foreign Labor and their Governments

Even though there are no accurate governmental  data on the number of foreign labor in Saudi by nationality, al-Riyadh  Newspapers reported estimates of the on the migrant labor by nationality,  according to World Bank. The first place was Indian workers, that numbered a  million and 453 thousands, second place was shared was Egyptians and Pakistanis  that numbered a million and 6 thousands, fourth place was Yemenis that numbered  894 thousands, and fifth and sixth places were occupied by Filipinos and  Bangladeshis, numbering 447 thousands and 391 thousands respectively.

Labor-exporting governments were worried about  the fate of its citizens affected by the Saudi campaign. Indian embassy, who is  responsible for around two millions, mobilized and was in continuous  communications with Saudi Ministry of Labor and   Ministry of Foreign Affairs, trying to offer help through its website  and visits. In April, Fillipino embassy issued a warning to its citizens urging  them to comply with the Law of Workmen and Work that prohibits working for  different sponsors, working in jobs other than what is indicated in their work  permits, or being without a work permit. It advised its citizens with expire  residencies to remind their employers to extend them to avoid troubles with the  Ministry of Labor, while the Filipino media covered the cases of detentions of  workers in violation with the Residency Laws. In a report covering the news of  arrest of 30, a Fillipino embassy official stated that  “Needless to say, the embassy is monitoring  what is happening to our people there and it is ready to extend assistance to  any Filipino who is arrested because of the violation of the Saudi labor law.”

But not all migrants were recipients of care by  their embassies as it was the case of Indians and Filipinos. Yemenis, for  instance, didn't get any official help by their embassy, even though they  represent the second largest community of Arab workers in the Kingdom (approximately  900 thousands), 300 thousands were exposed to detention and deportation at the  beginning of the campaign. For example, Udai Amin Al-Jarjeeri, a 32-year-old  accountant and a father of 4 girls, was forced by deteriorating economic  conditions after the 2011 revolution to shut down his office in Dhumar Province  and emigrate to Saudi, only  to find that this job contract is fake, to be  finally detained and deported. He complained from mistreatment by the Yemeni  embassy in dealing with his situation. Among thousands of deported Yemenis,  Abdullah Al-Qabti, a 27-year-old plumber says, “we were treated like criminals  or slaves, thrown into and out of trucks.” Muneer Al-Bashiri complained that  they were “thrown into a truck like sheep.” Najeeb Al-Udaini, head of Yemeni  Migrants Organization states, “our problem is not with the Saudis; it’s with  the Yemeni government, whose embassy is impossible to reach.” An investigation  in Al-Arabi Al-jadeed newspaper affirms the statement of Al-Udaini, as  consensus from migrant Yemenis in Saudi emphasized the absence of any positive  role by the Ministry of Migrants Affairs and the Yemeni embassy in Riyadh. The  secretary of the Yemeni community in Riyadh was reported saying, “the Ministry  of Migrants Affairs  does not want real  representatives of migrants, but rather clients serving as tribal sheikhs.”

Field  Results of the Security Campaign

With the end of grace period announced by the  King, Ministry of Interior started it field campaign to punish violators of  Residency Regulations and Law of Workmen and Work, and it has not stopped until  the writing of this paper in April 2015. Ministry of Interior publishes on a  daily basis statistics on the results of the field security campaign on its  website. By the end of March 2015, the number of violators forcibly deported  amounted to one million and fifty thousands, but these numbers are not broken  down by nationality, as they are always referred to as “from different ages and  nationalities.” Asked by the former newspaper on whether the campaign targets  Yemenis disproportionately, a former official in Saudi embassy in Yemen  answered, “if the correction campaign targets Yemenis and exclude others, the  process of issuing new work visas would have not continued daily in the  embassy.”

Other statistics issued by the Ministry of  Interior might be utilized to gauge the degree of nationality community was  affected, without implying that the campaign targeted specific nationalities.  According to statistics of immigrants caught at the Saudi borders for Shawwal  1436 AH (May - June 2014), the overwhelming majority (99%) are the Saudi-Yemeni  border. The number of immigrants caught at the Saudi-Yemeni border only (Asir,  Najran, and Jizan provinces), amounted to 27,043 while all other provinces (al-Madinah,  Tabuk, al-Jouf, Northern Area, and Eastern Area provinces) were 7 immigrants  only. Statistics of ther months do not differ much, where the number of caught  immigrants ranged from 44 thousands to 19 thousands during the months of the  1435 AH (November 2013 - October 2014). It can be assumed that a not very low  percentage of those who try succeed into getting into the kingdom, otherwise no  one would try.

These statistics are not surprising when  considering the wall installed on the Saudi-Iraqi border, and the difficulty of  crossing the sea, “because of the advanced techniques and radars that the guard  borders possess enabling them to detect crossers by sea” as the spokesperson of  Border Guard, General Mohammed al-Ghamdi puts it, and the absence of push  factors in other neighboring GCC countries. Thus, Yemenis remain more likely  than others to enter Saudi illegally, immediately being in violation of the  Laws of Residency, in contrary to, for instance, South Asians, who enter the  country legally and then violate the the law in later years. If can be assumed,  cautiously, that the Yemeni immigrants (in addition to African immigrants) that  cross the Southern borders were disproportionately affected. Before even the  the beginning of the security campaign that followed the end of the grace  period that ended in November 2013, the number of deported Yemenis in March  2013 totalled about 130 thousands, and security Yemeni officials expected the  deportation of additional 80 thousands with the beginning of the security  campaign in November 2013.

Thus, even though the correction campaign has not  appeared to target specific nationalities, it probably affected  disproportionately the labor of a country that tied to Saudi culturally,  socially, and geographically, yet with much lower income. The negative  ramifications has probably started even before the end of the correction  campaign. Abdulqader Ayedh, deputy Minister of Immigrants Affairs, has warned  of decreased remittances of Yemeni immigrants working in Saudi in June 2013.  Warning of worsening unemployment rate in Yemen (World Bank estimates it 17.7%  in 2012) and deterioration of economic conditions increases the probability of  civil unrest. This seems logical as the Yemen is sliding increasingly towards a  civil war that prompted a Saudi-led military coalition of ten countries. It is  worthing noting that the elimination of the exclusion of the Sponsorship System  granted to Yemenis in 1990, with the resulted deportation of one million  Yemenis had been followed by a civil war between the north and the south in  1994. The ramifications of the correction campaign might go beyond the borders  of the Kingdom, affecting the internal situation in Yemen, which does not seem  to be a considered consequence of decisions-makers.

There are no available data from the Ministry of  Labor or Ministry of Interior on the breakdown of deported labor by sector and  professional occupation. However, labor-intensive sectors would be the most  negatively affected, when 84.5% of the labor is concentrated in the private  sector construction, retail sales, wholesales, agriculture, and fishing  sectors. Construction sector seems to be hit hardest given the its high number  of foreign labor. Director of Contracting Committee in Jeddah Chamber of  Commerce and Industry, Engineer Moammar Al-Atawi clarifies that nationalization  (Saudization) percentage in the construction sector does not exceed 10.12%,  with around 4 million and 270 thousands working at its 270 thousands small-size  enterprises. According to the member of National Committee at the Saudi  Chambers of Commerce, Raed Al-Aqeeli, 36% of construction projects has stopped  because of the correction campaign. Director of Contractors Committee at Jeddah  Chamber of Commerce and Industry, Abdullah Radwan, said that “labor market is  in chaos because of the large number of deported foreign labor during the  correction campaign,” and “firms and contractors are facing incomplete  projects, with high wages and weak demand being imposed.”

According to the census of private establishments  in 2010 undertaken by the Central Department of Statistics, the number of  private establishments amounted to one million and 300 thousands  establishments, 71% of them are operating, numbered at 919,078 establishments.  Small establishments which employe 1-4 workers make 84%, while mid-size  establishments, that employ 5-19 workers, make 13%. Even though there is not a  new census of private establishments after the correction campaign, some date  show a decrease in the number of small operating establishments in the past two  years because of measures of the Ministry of Labor. Director of National  Committee of Entrepreneurs in Jeddah Chamber of Commerce and Industry, Ali  Al-Uthaim claimed that the decrease percentages reached 9.04% for the number of  small establishment in 2010 reached 9.04%, and 11.1% for very small  establishments, and that 191 thousands very small establishments and 21  thousands small establishments were driven out of the market.

The  Peculiarity of the Campaign

Announced goals of the campaign do not differ  substantially from the Saudization policies undertaken by the government since  the 90s as a solution to the problem of increasing unemployment among Saudis.  But this large-scale campaign seems to be conducted in the frame of “imposing  and enforcing the law,” in contrary to previous approaches that relied on  general public policies and incentives. In other words, the campaign was an  indicator of governmental direction that deals with unemployment -with the  cause being foreign labor- as a security problem that threatens citizens and  the state. This is evident in the wide media coverage of the public raids  carried by the Ministry of Interior and the closing of violating firms and the  rampant checkpoints in cities, and the horror and feeling of insecurity that  prevailed among the irregular foreign labor with the advent of “law and order”  phase.

The force used by the Saudi authorities prompted  condemnation from western human rights organization. Joe Stork, deputy director  of Human Rights Watch's Middle East and North Africa division, stated that  “Saudi authorities have spent months branding foreign workers as criminals in  the media, and stirring up anti-migrant sentiment to justify the labor  crackdown. Now the Saudi government needs to rein in Saudi citizens who are  attacking foreign workers.” The organization documented the violence witnessed  in Manfouha neighborhood south of Riyadh, where many numbers of Ethiopians  reside.

On the other hand, official authorities justified  the campaign by promising that it will provide jobs for Saudis, and Ministry of  Labor announced that it will contribute to the opening of thousands of jobs for  citizens, male and female, but economic reasoning and statistics show that  these promises have not been achieved.

According to the numbers of the Central  Department of Statistics and Information, unemployment rate amongst Saudis for  June 2013 was 11.7%, compared to 11.8% at the beginning of 2013, and 11.7%  midyear 2013. Then, overall, the campaign didn’t help to substantially decrease  the unemployment rate among Saudis, and the high levels of unemployment  persisted in the youth category (25-29 year-old) that it reached 38.9% in 2014.  The likely explanation for the failure of the campaign in decreasing the rate  of unemployment is that most of the unemployed are Bachelor's degree holders,  with 51%, followed by high school certificate holders, with 34.4% while the  majority of deported foreign labor possess low educational qualifications.

Economics  of foreign labor

To prove the positive outcomes of the campaign on  employment of Saudis, Adel Faqeeh, the Minister of Labor affirmed that 25o  thousands took advantage of the employment services during the campaign. In May  2015, Mufrij Al-Haqbani, Deputy Minister of Labor, announced that the  correction period increased the employment from 35 thousands to 65 thousands  monthly, and the number of Saudis in the private sector increased from 700  thousands to 1.5 million after the correction period. Then, Ministry of Labor  implies that the presence of this foreign labor is harmful to the interests of  Saudi citizens and aggravates the problem of unemployment, and deporting them  -through these campaigns- will result in substituting them with local labor.  But how accurate are these claims/expectations from an economic point of view?

The argument that states deported foreign labor  will be replaced by local labor ignores the slopes of supply and demand. For  the sake of simplicity, we can assume that, without foreign labor, the supply  of local labor will be weak with high wages (“Local demand” in the graph).  However, with the presence of foreign labor, the supply curve will shift to the  right with a change in its slope (“Total Demand including Foreign Labor” in the  graph), as the number of workers will increase substantially (Column N2) -taken  into consideration the difference in wages and the number of willing citizens  to take on these jobs- with a big decrease in wages (Line W2). When all foreign  labor is deported, the number of workers will be limited to the local demand  with higher wages as the slope of the curve of local supply is higher (Point B)  Then, in the most extreme case, deporting all foreign labor will not result in  replacing them with local labor, but rather will the number of local workers  will increase with a lesser number, with an increase in wages in elimination of  many jobs occupied by the foreign labor.

Thus the claim that deporting irregular foreign  labor with result in replacing it with local labor seem far-fetched under  current market circumstances. But what is the effect of foreign labor on the  general level of wages in the local economy?

Theoretically, on the short-term, immigration or  foreign labor decreases the wages of workers they are in competition with and  increases the wages of complementary workers.   Low-wages foreign labor increase competition on low-skilled jobs. In the  same time, high-wages local labor are benefited because they will pay less in  return of services that low-wages foreign labor provide, which enable them to  specialize in the jobs that suits their skills and educational levels.

For instance, the immigration of one million  elementary-school-educated workers might result in a severe competition with  the elementary-school-educated local workers. In the United States of America,  for example, wages of high-school dropouts are negatively affected by  immigration as their wages decreased by 6.2%, while it would have been 1.7% at  the abscence of immigrants because most of immigrants -especially illegal  immigrants- occupy jobs that are competed over by American high-school  dropouts. However, since the jobs occupied by the irregular workers almost  entirely do not require high skills, the logical outcome of deporting them will  be an increase in prices and elimination of many jobs. Even if there is  partiality for local workers in foreign-labor-intensive sectors, the new laws  such as the minimum wages for nationals will make the former safe from such  negative effects of completion and the wage decrease it causes.

The unintended consequences such as increase in  prices and the elimination of numerous jobs, were evident in the construction  and contracting sector, where newspaper reports talked about a 150% increase in  wages with the  start writing.